A paint firm has just announced that it will be building a new plant in a small town that is currently experiencing a high level of unemployment. The new plant will create 500 new jobs in the area and will occupy unused land at the edge of town. The plant will also dump some harmful chemicals into the town's river. From an economic standpoint this dumping of chemicals
A. creates a negative externality.
B. is unimportant since the firm is reducing the unemployment in the region.
C. is the production of a public good.
D. creates a positive externality.
Answer: A
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The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A
When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
Which of the following is an example of a forward contract?
A. A farmer near Ames and a local ethanol plant agree on a price and quantity of corn to be delivered later today. B. A farmer near Ames and Key Co-Op agree on a price and quantity of corn to be delivered 6 months from now. C. A farmer near Ames goes short on a futures contract. D. A farmer in Ames sells corn to a Canadian firm.
Suppose an industry consists of 20 firms. Each firm's share of total sales in the industry is 5 percent. If two of the firms merge, then the four-firm concentration ratio in the industry will
A. increase. B. remain unchanged. C. depend on the market condition faced by the industry. D. decrease as there are fewer firms in the industry.